2011 (12) TMI 761 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the notice issued under section 148 read with section 147 of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer to reopen assessment after the expiry of four years.
3. Requirement of full and true disclosure of material facts by the assessee.
4. Grounds of reassessment based on change of opinion.

Detailed Analysis:

1. Validity of the notice issued under section 148 read with section 147 of the Income Tax Act, 1961:
The petitioners challenged the notice dated 25th March 2011, issued by the Assessing Officer under section 148 read with section 147 of the Income Tax Act, 1961, proposing to reopen the assessment for the Financial Year 2003-04 (Assessment Year 2004-05). The original assessment was completed on 29th December 2006 under section 143(3) of the I.T. Act. The Assessing Officer initiated reassessment proceedings on the ground that depreciation on the buildings at Kolkata had been wrongly claimed since the petitioner company had returned rental income from the said property.

2. Jurisdiction of the Assessing Officer to reopen assessment after the expiry of four years:
The reassessment proceedings were initiated almost six years after 31st March 2006, which is beyond the four-year limitation period stipulated in the proviso to section 147 of the I.T. Act. The proviso to section 147 states that no action shall be taken after four years from the end of the relevant assessment year unless there is a failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. The court found that the petitioner company had filed its income tax return, Tax Audit Report, and other relevant documents, fulfilling the first pre-condition for reassessment after four years.

3. Requirement of full and true disclosure of material facts by the assessee:
The court noted that the petitioner company had disclosed all relevant facts, including the claim for depreciation, in its income tax return and Tax Audit Report. The Assessing Officer had examined these claims during the original assessment proceedings. The court emphasized that there had been no failure on the part of the petitioner company to disclose fully and truly all material facts necessary for the assessment for the Assessment Year 2004-05. The court referred to several judgments, including Amiya Sales & Industries v. ACIT, which supported the proposition that the condition precedent for reopening assessment is the failure of the assessee to fully and truly disclose material facts.

4. Grounds of reassessment based on change of opinion:
The court held that mere change of opinion is not a valid ground for reassessment. The court cited judgments such as CIT v. Kelvinator of India Ltd. and Berger Paints (India) Ltd. v. Assistant Commissioner of Income Tax, which established that reassessment cannot be justified on the basis of facts and materials already disclosed during the original assessment proceedings. The court found that the reasons recorded by the Assessing Officer did not show any failure on the part of the petitioner company to disclose material facts and that the reassessment proceedings were prompted by a change of opinion.

Conclusion:
The court concluded that the Assessing Officer lacked jurisdiction to issue the notice for reassessment after the expiry of four years from the end of the relevant assessment year. The impugned notice was set aside and quashed. The court emphasized that the reasons for reopening assessment must show a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, which was not evident in this case. The writ petition was disposed of accordingly, and the prayer for stay of operation of the judgment was rejected.